Friday, November 18, 2016

Indian economy grinds to a halt after cash-ban: "Faith in system shaken"

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About 85% of all currency in circulation has just been turned into coupons that can only be exchanged in specific places. These notes can be converted into currency again only with identity proofs (which hundreds of millions don’t have) and the additional hardship of standing in many queues for many hours.

Over half of India’s population doesn’t have any sort of bank account at the moment and about 300 million don’t have basic ID such as Aadhaar either and hence, cannot access the banking system at all. About 130 million Indians have mobile wallets (about 25 million have credit cards) and there are maybe 550 million-600 million debit cards in circulation. So access to cash is very, very important for average Indians.

Liquidity in the economic system will be sucked out for several weeks at the very least, due to the very stringent restrictions on cash withdrawals from ATMs, and bank accounts. Plus there’s the sheer logistics of getting that massive volume of new notes into circulation. In addition there will be a cost to printing and distributing the new notes and taking the old currency out of circulation.

India is a cash economy. Well over 90% of all transactions are done in cash. Most of these transactions are legal, consisting of relatively small amounts, and frequently done by people who don’t make enough money to pay income tax. Your domestic worker pays for her bus ticket. You pay her husband, the plumber, for fixing your flush. The security guard at the bank ATM buys cigarettes. Full story...

Related posts:
  1. For the first time in India, the rich beg the poor to help them...
  2. The ugly face of India's demonetization: Dozens of deaths...
  3. Baby dies after Indian hospital refuses to accept parents' money...
  4. Decision on note ban like 'kadak chai'; bad taste for rich, poor love...
  5. India's great bank note switch appears to be working...
  6. India's Dalit minister Mayawati gets garland made entirely of rupees!!!
  7. India's audacious plan to bring digital banking to 1.2 billion people...

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